Wells Fargo settles charges of improper sales practices

Wells Fargo has agreed to settle allegations of improper sales practices leveled against several current and former senior executives of the firm in a shareholder derivative lawsuit led by the $4.7 billion Colorado Fire & Police Pension Association, Greenwood Village, and $1 billion Birmingham (Ala.) Retirement and Relief System, which are the lead plaintiffs.

Wells Fargo announced in a 10-K filed with the SEC last month, that its "shareholders have brought numerous shareholder derivative lawsuits asserting breach of fiduciary duty claims, among others, against current and former directors and officers for their alleged failure to detect and prevent sales practices issues."

The 10-K added: "The parties have reached an agreement in principle to resolve the shareholder derivative lawsuits pursuant to which insurance carriers will pay the company approximately $240 million for alleged damage to the company, and the company will pay plaintiffs' attorneys' fees."

In addition to the $240 million cash payment from the defendants' insurers to Wells Fargo, Wells Fargo also implemented measures to prevent future wrongdoing. These measures include changes to top-level management and the composition of the board, improved internal controls, a stronger risk management framework, expanded monitoring of company culture and enhanced oversight functions.

In addition, the board reduced compensation for several senior executives and required others to forfeit past compensation.

As part of the settlement, the portion of the corporate governance reforms and the clawbacks attributable to the plaintiffs' efforts in this action have a combined value of $80 million to Wells Fargo, bringing the total settlement value to $320 million.

According to the settlement, the suit accused a total of 20 current or former senior Wells Fargo & Co. executives of either knowing or consciously disregarding that "employees were illicitly creating millions of customer accounts without those customers' knowledge or consent."

The complaint alleged that Wells Fargo, its board and senior executive, "sanctioned the corporate policy of promoting and maintaining an aggressive sales culture" as a means of inflating and manipulating Wells Fargo's stock price.

Wells Fargo spokesman Peter Gilchrist declined to comment beyond what was in the filing.

"FPPA, as court-appointed co-lead plaintiff, is pleased to have reached a resolution of its derivative lawsuit against Wells Fargo's officers and directors, on behalf of the bank's shareholders," said Kevin B. Lindahl, deputy executive director and general counsel, in an emailed statement.

"The settlement terms include the clawback of compensation from certain officers given their involvement in the wrongdoing," Mr. Lindahl added. "The settlement signals to corporate officers and directors that investors like FPPA have high expectations for management in the companies we invest in."

Chaz Mitchell, Birmingham city finance director, could not be immediately reached for comment.